How Iran's nuclear deal affects India

Iranians celebrate following a landmark nuclear deal in Tehran, Iran, Tuesday, July 14, 2015. Image copyright AP
Image caption The deal announcing the lifting of economic sanctions against Iran could open a market of of 80 million consumers

The landmark nuclear deal between Iran and major world powers has enabled Tehran to restore normal trade with many countries. But before the deal was reached, and despite crippling sanctions, India was among a handful of countries doing billions of dollars of trade with Iran.

The lifting of sanctions will have significant implications for Delhi, which hopes to reinvigorate its economic and strategic engagement with Tehran.

However, there are concerns among Indian businessmen that Iran may now play hard to get, or even turn to more competitive international players. The BBC's Anbarasan Ethirajan looks at the impact on India and its economic interests.

Oil imports from Iran

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Image caption India has to release an estimated $6bn in pending oil payments to Iran

Current bilateral trade between India and Iran is about $14bn (£8.96bn) with the balance of trade in heavily in Tehran's favour. Indian exports to Iran were around $4.2bn last year.

India primarily imports oil from Iran, but has been hampered by restrictions placed by global powers.

Due to the sanctions, India has been paying Iran in Indian rupees, with the money kept in an Indian account. In fact, the country is yet to release an estimated $6bn in pending oil payments to Iran.

Now Delhi, which is the fourth largest consumer of oil in the world, is free to import Iranian oil but will have to pay in dollars.

Importing goods or sending shipments to Iran is currently expensive because of high shipping charges. India hopes the removal of sanctions will make it easier for companies to get shipments.

Machinery, tools and non-agriculture commodities

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Image caption India's trade with Iran appears to have long-term benefits in the post-sanctions scenario

India has been exporting automobile components, tools, motors and chemicals to Iran.

While India's trade with Iran appears to have long-term benefits in the post-sanctions scenario, businessmen are concerned that some areas will be hit hard.

"Indian exporters will have to compete with Eastern European manufacturers who produce low-end products like spanners, hand tools and auto parts. Since the value of the euro has depreciated in the last few years, we will be facing stiff competition from European manufacturers," said Ajai Sahai, Director-General of the Federation of Indian Export Organisations.

Infrastructure Projects

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Image caption India has invested in Iran's infrastructure

There are concerns in Delhi that a more assertive Iran will drive a hard bargain as it will have more diversified customers and partners from around the world.

Indian companies explored and discovered oil and gas in Iran's Farzad B gas field in 2008. They have already invested around $100m to develop the facility but production was stalled due to sanctions.

After dragging its feet for years, New Delhi rushed in a delegation to discuss the project, as signs emerged that sanctions on Iran would be lifted after the nuclear deal. But Iranian press reports say Tehran has rejected India's proposal and plans to auction the site instead.

If there is a tender process, it will be difficult for Indian companies to compete with French, American and Chinese oil firms who will come in with abundant resources and the latest technology. Russia and China which have been supportive of Iran may try to convert this goodwill into economic and business gains.

India also signed signed a $233m contract to supply a more than 150,000 tonnes of rail tracks to develop Iran's railways. But the project has run into trouble with reports saying Iran wants to renegotiate the deal to bring down the price because the euro has declined against the dollar.

Tehran also points out that once sanctions are lifted it will get better offers from other countries, like Turkey. India has now reportedly agreed to finance the entire scheme under a special mechanism.

New Opportunities

Image copyright AFP
Image caption India is Iran's top rice supplier

It's not however, all doom and gloom for Indian businessmen. Exporters say Indian companies may lose out in the short-term but are poised to gain in the future.

India is Iran's top rice supplier and it can also increase its exports of other agricultural products such as sugar and soybeans.

India's pharmaceutical and IT companies can also boost their business.

"Many of the big Indian pharmaceutical and textile businesses were reluctant to deal with Iran because they were afraid of the sanctions. Now they can deal with Iran freely and invest there. So it will be a big boost for Indian exports," says Mr Sahai.

Strategic Partnership

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Image caption The two countries signed a deal to develop the Chabahar port in southern Iran

Iran's strategic location, as a gateway to Central Asia, is key to India's ambitions to get a foothold in the region.

The countries signed a deal to develop the Chabahar port in southern Iran.

Indian firms will lease two existing berths at the port and operationalise them as container and multi-purpose cargo terminals. Once operational, it is expected to open a new trade route to Central Asia.

"In the absence of a land route through Pakistan to Central Asia, a road and rail network via Chabahar port is important for India. It will open up a trade route to Central Asia and Afghanistan. The port will help India to send goods through road and rail networks to those countries. India didn't have this kind of access in the past," says Tanvi Madan of Brookings Institution in Washington.

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